Stop Trading!: Who Pays Off TARP First?

Goldman Sachs might be the first financial institution to pay back money borrowed from the Troubled Asset Relief Program, Cramer said during Tuesday’s Stop Trading!. An equity offering could raise funds to clear the company’s debt to Washington.

While a preferred-shares offering in the open market would cost more than the TARP money owed, Cramer thinks that selling straight stock could work. If Goldman shares reached $100 to $110, that would generate enough new capital to get things square with the government – new capital being a prerequisite for paying off a TARP loan. And right now Goldman is trading near its tangible book value, which means the offering wouldn’t hurt existing shareholders.

“It would certainly be incredibly well received by this marketplace,” Cramer said of the offering.

This doesn’t mean, though, that other banks, such as JPMorgan Chase, would follow Goldman’s lead. Aside of the large amount of cash needed to pay back Washington, Cramer said, it’s also “somewhat insulting” to do so. The government doesn’t to be shown up by individual banks.

On a related note, rumors that new Treasury Secretary Timothy Geithner might eliminate TARP participants’ preferred shares is one of the reasons the banks are down so much in Tuesday trading, Cramer said. He likened this lack of certainty to those harrowing weekends last year when no one knew what Monday morning would bring – Another failed bank? A government rescue? Geithner was in the middle of that fray, “and here is again.”

Elsewhere in the market, UPS’s post-quarter headlines painted a far bleaker picture than the company deserves, Cramer said. With cash flows over $5 billion, a safe dividend and a boost in business thanks to DHL’s collapse, UPS seems to be holding up well.

And lastly, Cramer’s looking at the rails. The very commodities that these companies carry – timber, coal, fertilizer – seem to be in demand again. And the hedge funds that have largely owned firms like CSX are no longer suffering from massive client redemptions. Norfolk Southern, which pays a 3.6% dividend yield, is “probably the safest,” Cramer said.